Monday, February 24, 2014

Elon Musk Is A Sucker

Poor Elon Musk. The billionaire founder of the highly successful electric car company Tesla Motors and the commercial space transport service SpaceX must be slapping his forehead raw when he realized what a fool he has been trying to make his next billion dollars. He has been struggling for years to create the Tesla Model S. This required him to buy an actual car factory and hire thousands of people to work in it. He has had to practically reinvent the battery industry to power the thousands of cars that needed to be sold to make the whole enterprise work. He's had to follow gazillions of government regulations before he could put a single car on the road. Mr. Mush has had to put up with hack car journalists who had no idea about how to properly drive an electric vehicle. For all those struggles and headaches, what does he have to show for it? Tesla Motors has a market cap of only $25 billion.

Now comes word that Facebook is buying a phone app called WhatsApp for $19 billion. That's $19,000,000,000! This is a company that has practically zero revenue because its service is almost free (it recently started charging 99 cents per year). It has only 55 employees. And it was begun a mere 5 years ago. This obscene price makes WhatsApp more valuable than such diehard Fortune 500 companies like Alcoa, Harley-Davidson, Gap, and Southwest Airlines, companies that, you know, actually make money and employ thousands of people. I still can't wrap my head around the idea of somebody paying billions of dollars for a company that is giving away a free service that nearly all cellphone users get as part of their phone contracts anyway.

It's hilarious reading about how Facebook was able to justify the price. Basically it all comes down to the eyeballs. Or specifically the 450 million people who use the app every month. It has more users than the much vaunted Twitter which has a market cap of $31 billion. Therefore Facebook got a steal of a deal, right? WhatsApp also has a younger demographic of users, which Facebook is desperately trying to retain as the old folks move in who are trying to locate their long lost high school sweethearts. It also has more international exposure than FB and its rate of growth is still climbing as FB starts to moderate.

Somehow I can't help but think that all these excuses sound awfully similar to the dotcom stock bubble that occurred a mere decade and a half ago at the turn of the millennium. Back then people were pumping up stocks with names like Pets.com, Webvan, and inktomi. These were all companies that were worth billions of dollars but had little revenue and huge red ink in their books. Yet due to their ability to attract people to their websites, they were considered the next great American companies. After all, the capability to manufacture actual products in this country is so 20th century.

Perhaps the now billionaire founders of WhatsApp are the new Mark Cuban, who sold Broadcast.com to Yahoo for billions of dollars right at the peak of the tech bubble. Or maybe they are the new Kevin Systrom and Michel Krieger, the founders of Instagram who sold their company to Facebook for a mere $1 billion back in 2012. If Instagram had only held out for another twelve months, they could probably had gotten at least five to ten times that amount.

So Elon Musk, we doctors can sympathize with you. We too put in years of hard work and have to put up with all sorts of government regulations and unfair criticisms. But like you all our efforts are underappreciated as more glamorous industries come along and grab all the money and fame. These young whipper snappers think they will rule the world with their small offices of overworked programmers who give away the fruits of their labors, contributing practically nothing to our GDP. Yet the real world requires people like us who toil day in and day out so that the world will be a better place. So Mr. Musk, you and I should get together and drown our sorrows in a few glasses of suds. You can arrive in your six figure car while I show up in my eleven year old Honda. I may even pick up the tab.